5. Wright\'s Warehouse has the following projections for Year 1 of a capital bud

Question

5. Wright's Warehouse has the following projections for Year 1 of a capital budgeting project. Year 1 Incremental Projections: Sales $150,000 Variable Costs $100,000 Fixed Costs $25,000 Depreciation Expense $10,000 Tax Rate 40% Calculate the operating cash flow for Year 1. (Points : 15) $52,000 $32,000 $19,000 $12,000 6. The firm like to finance its assets with40% debt and 60% equity. They are planning to invest in a project which will necessitate raising new capital. New debt will be issued at a before-tax yield of 12%, with a coupon rate of 10%. The equity will be provided by internally generated funds. No new outside equity will be issued. If the required rate of return on the firm's stock is 12% and its marginal tax rate is 35%, compute the firm's cost of capital. (Points : 10) 11.1% 10.32% 13.5% 12.5% 7. We recieved $1,500 at the beginning of year 1, $3,000 at the beginning of year 2, and $4,500 at the beginning of year 3. If these cash flows are deposited at 11 percent, what will be their combined future value at the end of year 3? (Points : 10) $12,520 $9,413 $8,342 $8,735 $10,743

Explanation / Answer

5. Costs = 100,000 + 25,000 = 125,000 ; Profit = 150,000 - 125,000 - 10,000 = 15,000 ; Tax Expense = 0.4*15,000 = 6,000 ; Net Cash flow = (15,000 - 6,000) + 10,000 = $19,000 ; 7. 1500*1.11^3 + 3000*1.11^2 + 4500*1.11 = $ 10,743 ;

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